Robert Gladu and Artisan Masonry, Inc. v. Larry Wallace, Individually and d/b/a Wallace Insurance Agency--Appeal from 44th District Court of Dallas County

11th Court of Appeals

Eastland, Texas

Memorandum Opinion

Robert Gladu and Artisan Masonry, Inc.

Appellants

Vs. No. 11-02-00211-CV B Appeal from Dallas County

Larry Wallace, Individually and d/b/a Wallace Insurance Agency

Appellee

This is an appeal from a summary judgment granted in favor of Larry Wallace, Individually and d/b/a Wallace Insurance Agency. Robert Gladu and Artisan Masonry, Inc. bring two issues on appeal. Their basic contention is that the trial court should not have ruled that the unlawful acts rule prevented any recovery against Wallace. We affirm in part and reverse and remand in part.

Robert Gladu is the owner of all the stock of Artisan Masonry, Inc. Gladu was the owner of a sole proprietorship, Artisan Construction, which was later incorporated into Augusta Construction, Inc.[1] Wallace is an insurance agent. In 1998, Gladu went to Wallace for workers= compensation insurance consultation. Wallace completed an application for workers= compensation insurance, and Gladu signed it. The application was sent to the Texas Workers= Compensation Insurance Fund (the Fund). Thereafter, Wallace was provided an initial premium quote of $5,618 for workers= compensation coverage. Wallace conveyed the information to Gladu, and Gladu elected to take the coverage. The Fund then issued an insurance policy in the name of Artisan Construction. Subsequently, Wallace provided advice to Gladu regarding periodic reports which Gladu made to the Fund. Premium payments were computed based upon information contained in the reports. In May 1999, the Fund conducted an audit in connection with the insurance. As a result of the findings made during the audit, the State brought criminal charges against Gladu.[2] As a result of a plea agreement, Gladu received deferred adjudication and was ordered to pay $200,000 in restitution. Gladu and Artisan Masonry, Inc. then brought this lawsuit against Wallace asserting negligence, gross negligence, common-law fraud, Deceptive Trade Practices[3] violations, and Insurance Code[4] violations. Wallace filed a motion for summary judgment, urging the trial court to find that appellants= causes of action were barred because of the unlawful acts rule. The trial court granted the motion.

In order to prevail upon a motion for summary judgment based upon an affirmative defense, the movant must conclusively establish each element of the affirmative defense. American Tobacco Company, Inc. v. Grinnell, 951 S.W.2d 420, 425 (Tex.1997); Nichols v. Smith, 507 S.W.2d 518 (Tex.1974). A matter is conclusively established if ordinary minds cannot differ as to the conclusion to be drawn from the evidence. Triton Oil & Gas Corporation v. Marine Contractors and Supply, Inc., 644 S.W.2d 443, 446 (Tex.1982). Once the movant establishes a right to a summary judgment, the non-movant must come forward with evidence or law that precludes summary judgment. City of Houston v. Clear Creek Basin Authority, 589 S.W.2d 671, 678-79 (Tex.1979). When reviewing a summary judgment, the appellate court takes as true evidence favorable to the non-movant, and every reasonable inference must be indulged in favor of the non-movant and any doubts resolved in its favor. American Tobacco Company, Inc. v. Grinnell, supra at 425; Nixon v. Mr. Property Management Company, Inc., 690 S.W.2d 546, 548-49 (Tex.1985).

The Aunlawful acts doctrine@ was first established in Texas in Gulf, C. & S. F. Ry. Co. v. Johnson, 9 S.W. 602 (Tex.1888). In Gulf, Johnson was the lessee of a building where damages were incurred due to the destruction of carpet, wallpaper, and gaming tables. Johnson brought suit against Gulf and won damages in the trial court. In its appeal from that judgment, Gulf asserted that, because gaming was illegal in this state, an owner of such property could not recover damages to property used for that purpose. In defining the unlawful acts doctrine, the court wrote:

It may be assumed, as undisputed doctrine, that no action will lie to recover a claim for damages, if to establish it the plaintiff requires aid from an illegal transaction, or is under the necessity of showing or in any manner depending upon an illegal act to which he is a party....In those cases where it is shown that, at the time of the injury, the plaintiff was engaged in the denounced or illegal act, the rule is, if the illegal act contributed to the injury, he cannot recover. Gulf, C. & S. F. Ry. Co. v. Johnson, supra at 603.

However, the court in Gulf held that there was no showing that the damaged property was being used for the illegal act of gaming and that recovery was not barred.

The court in Houston Ice & Brewing Co. v. Sneed, 63 Tex.Civ.App. 17, 132 S.W. 386 (1910, writ dism=d), also addressed the unlawful acts doctrine. There, Houston Ice sold a supply of a drink known as AHiawatha@ to Sneed, a soft drink retailer. Houston Ice assured Sneed that AHiawatha@ was not intoxicating and that it was legal to sell it. AHiawatha@ was made from malted barley, rice, hops, and artesian water and contained between 1.5 and 2 percent alcohol. Sneed sold Aseven or eight barrels@ of AHiawatha@ before he was arrested and convicted of selling malt liquor capable of producing intoxication without having a license and without paying taxes on it. Sneed, the proprietor, sued Houston Ice for recovery of the damages accrued in the criminal prosecution. Sneed argued that he relied on the representations made by Houston Ice and that he did not know the drink was intoxicating. Despite his claimed lack of knowledge, Sneed had been convicted of an illegal act, and the court did not allow recovery. Houston Ice & Brewing Co. v. Sneed, supra.

In more recent cases, the unlawful acts doctrine and public policy of this state have been defined in such a manner that recovery is barred when the claimant has knowingly and willfully engaged in criminal acts which contributed to the injury alleged to have accrued. See, e.g., Saks v. Sawtelle, Goode, Davidson & Troilo , 880 S.W.2d 466 (Tex.App. B San Antonio 1994, writ den=d); Dover v. Baker, Brown, Sharman & Parker, 859 S.W.2d 441 (Tex.App. B Houston [1st Dist.] 1993, no writ).

In Saks, David M. Saks, James Doyle Spruill, and Omni/Corpus Christi, Ltd. asserted malpractice, gross negligence, misrepresentation, breach of express and implied warranties, and deceptive trade practices actions against law firms and their attorneys who advised them in connection with a loan transaction. A jury had previously found plaintiffs guilty of five counts of bank fraud and one count of conspiracy to defraud the United States in connection with circumstances surrounding the transaction. The jury in the criminal case found beyond a reasonable doubt that Saks, Spruill, and Omni knowingly devised a scheme to defraud a federally chartered or insured financial institution. In the civil case, the attorneys and their firms sought a summary judgment in which it was asserted that the cause of action was barred because of public policy. The trial court granted the summary judgment. On appeal, the court held that: A[P]ublic policy precludes ...recovery of damages...which resulted from...willful commission of crimes.@ Saks v. Sawtelle, Goode, Davidson & Troilo, supra at 470-71.

In Dover, suit was filed by Dover against certain attorneys and accountants and their firms. Dover sought damages which he had suffered in connection with advice given him by those whom he sued. The trial court granted motions for summary judgment based upon public policy. In affirming the trial court=s judgment, the appellate court focused on the fact that it previously had been found that Dover knowingly and willfully committed tax evasion and that he also knowingly made false tax statements. The court held that, where one is a knowing and willful party to illegal acts and those acts contribute to the injury, public policy prohibits recovery of damages resulting from those acts. Dover=s illegal conduct was more than merely incidental to his claim; it was inextricably intertwined with them.

The unlawful acts rule was reiterated by the court in Ward v. Emmett, 37 S.W.3d 500 (Tex.App. B San Antonio 2001, no pet=n). There, Ward, who suffered from mental problems, shot and killed her mother. Ward=s parents had purchased life insurance from Humana Insurance Company, and Ward apparently had problems in collecting the proceeds. Ward sued Humana Insurance Company in addition to numerous health care providers, alleging that she had received inadequate medical care. The defendants moved for summary judgment based upon the unlawful acts rule as well as the doctrine of assumption of the risk. The trial court granted the motion.

Ward=s causes of action were for breach of contract, violation of the Texas Insurance Code and the Texas Deceptive Trade Practices Act, conspiring to commit commercial bribery, professional negligence, and breach of the duty of good faith and fair dealing. On appeal, the court noted that Ward had attempted to cast her claims and resultant damages in such a fashion as to show that her injuries arose when the policy was breached or when the negligent medical care was provided rather than the time at which she killed her mother. The court quoted the rule from Gulf and held that Ward=s damages were the result of her own illegal conduct and that she could not recover:

More simply, Ward would have suffered none of her alleged injuries in the absence of her mother=s murder. Because Ward=s illegal conduct caused her injuries, the trial court properly granted summary judgment.

Ward v. Emmett, supra at 503.

Appellants rely upon Macias v. Moreno, 30 S.W.3d 25 (Tex.App. B El Paso 2000, pet=n den=d). The court in Macias held that the unlawful acts rule did not apply in that case because there was no evidence that an offense had been committed. The plaintiff there was not required to prove any part of an illegal act in order to recover. In fact, criminal charges against the plaintiff had been dismissed.

Macias is distinguishable. In addition to the summary judgment evidence set out earlier in this opinion, the evidence also shows that Gladu was charged by information with the offense of securing execution of a document by deception, a third degree felony. The information contains the following language:

[Gladu did] pursuant to one scheme and continuing course of conduct which began on or about the 22nd day of June, A.D. 1998 and continuing on or about the 22nd day of June, A.D. 1999 in Travis County, Texas, said defendant did then and there with intent to defraud and harm the Texas Workers= Compensation Insurance Fund, a governmental corporation created by Art. 5.76-3 of the Texas Insurance Code, by deception, caused the Texas Workers= Compensation Insurance Fund to sign and execute documents affecting its property, service and pecuniary interest, where the value of the property, service or pecuniary interest was $20,000 or more but less than $100,000.

The question is whether the summary judgment evidence conclusively established Wallace=s affirmative defense that, at the time of the injury, appellants were engaged in unlawful acts which contributed to their injury and that such conduct was more than incidental to appellants= claims and was inextricably intertwined with them. In the plea agreement which he signed under oath, Gladu stated that he violated the law as alleged. The plea agreement provides in part:

6. Waive my right to remain silent and state that it is my desire to make a judicial confession of my guilt. I have read the information filed in this case and:

% I committed and am guilty of each and every allegation it contains.

The statement is an admission and is binding upon Gladu, but it is not conclusive against him in this circumstance; he was entitled to refute the statement, but he did not. See Sumner v. Kinney, 136 S.W. 1192 (Tex.Civ.App.1911, no writ); see generally 35 TEX. JUR. 3d Evidence ' 249 (2002). The summary judgment evidence contains portions of Gladu=s deposition where he stated that he did not plead guilty. There is a general disagreement over whether the plea was a plea of guilty or a plea of no contest. The plea agreement form which was used was for a guilty plea, but many portions of it had been changed to reflect a Ano contest@ plea. However, there were other places where the plea agreement had not been modified. There are references to both in the agreement. However, we do not believe that the nature of the plea is dispositive of the unlawful acts rule under the summary judgment evidence available in this case. Gladu admitted within the plea agreement that he committed the offense charged in the information. Here, Wallace came forward with evidence to establish each element of the affirmative defense. No summary judgment evidence was offered to the contrary. KPMG Peat Marwick v. Harrison County Housing Finance Corp., 988 S.W.2d 746, 748 (Tex.1999); City of Houston v. Clear Creek Basin Authority, 589 S.W.2d 671, 678 79 (Tex.1979). We hold that the summary judgment evidence conclusively established that Gladu was prohibited from recovering in this case. Appellants= first issue on appeal is overruled.

In their second issue on appeal, appellants assert on behalf of Artisan Masonry, Inc. the same issue set forth in connection with Gladu. A review of the summary judgment record shows a complete lack of any evidence that Artisan Masonry, Inc. was involved in any unlawful acts. Wallace simply asks us to imply that Artisan Masonry, Inc. was involved because Gladu was the sole owner and president. To the contrary, the summary judgment evidence does not reflect that any criminal charges were brought against Artisan Masonry, Inc. Neither does the record contain any other proof that Artisan Masonry, Inc. committed any unlawful acts. We note that the application for the workers= compensation policy by Gladu is not in the record. We also note that the policy which was issued by the Fund actually named ARobert Gladu DBA: Artisan Construction@ as the named insured. The summary judgment proof shows that Artisan Construction was at one time a sole proprietorship owned by Gladu and that it was later incorporated into Augusta Construction. Because Wallace has failed to conclusively establish the unlawful acts defense against Artisan Masonry, Inc., appellants= second issue on appeal is sustained.

The judgment of the trial court against Gladu is affirmed. The judgment of the trial court against Artisan Masonry, Inc. is reversed, and that part of this cause is remanded to the trial court.

JIM R. WRIGHT

May 1, 2003 JUSTICE

Panel consists of: Wright, J., and

McCall, J., and McCloud, S.J.[5]

[1]Augusta Construction, Inc. was also a part of the lawsuit but nonsuited all its claims prior to the summary judgment and is not a party to this appeal.

[2] The State also brought charges against Wallace. The outcome of that case is not a part of the summary judgment evidence.

[3]TEX. BUS. & COM. CODE ANN. ch. 17.41 (Vernon 2002).

[4]TEX. INS. CODE ANN. art. 21.21 (Vernon 1981 & Supp. 2003).

[5]Austin McCloud, Retired Chief Justice, Court of Appeals, 11th District of Texas at Eastland sitting by assignment.